On Wednesday morning, the U.S. dollar maintained a steady position after experiencing some losses earlier in the week, as market participants awaited crucial upcoming inflation data. The Dollar Index, which measures the greenback's strength relative to a collection of six other currencies, was largely unchanged at 98.910 around 04:30 ET (09:30 GMT), following a modest downtrend at the start of the trading week.
The greenback had dipped briefly on Tuesday in response to consumer price figures that suggested potentially more leeway for the Federal Reserve to consider rate cuts. December’s core Consumer Price Index (CPI) increased by 0.2%, leading to a 2.6% rise year-on-year, slightly below market expectations.
Despite this softer inflation reading, currency analysts from ING pointed out that the dollar's short-term outlook remained positive, observing that price movement in response to the CPI data was limited and that the dollar swiftly regained ground. This resilience reflects investor confidence in the dollar amid muted Fed pricing adjustments.
Attention has now turned to further U.S. economic indicators due for release on Wednesday, including October’s producer price index and November’s retail sales figures, which will provide additional insight into inflationary trends and consumer demand.
The dollar also found support following statements backing Federal Reserve Chair Jerome Powell from a coordinated group of international central bankers. This endorsement came amid tensions triggered by the U.S. administration's threat of criminal charges against Powell related to testimony about renovations at the Fed headquarters, which had raised concerns about the central bank’s independence.
ING analysts suggested that this episode might ultimately strengthen the dollar’s position, perceiving Powell as potentially becoming more hawkish to assert the Fed's autonomy.
Meanwhile, market participants are closely monitoring an expected Supreme Court ruling on the legitimacy of former President Trump’s tariff measures, anticipated as soon as Wednesday, which could influence trade dynamics.
In European currency markets, the euro edged up 0.1% against the dollar to 1.1650 as diplomats from the U.S., Denmark, and Greenland convened to discuss the mineral-rich island’s future. So far, threats from the U.S. regarding Greenland have not significantly affected market sentiment, implying minimal risk premiums to adjust regardless of the outcome. ING noted that negotiators reaching positive agreements could alleviate geopolitical uncertainties that currently weigh on European currencies, although analysts continue to project a modest decline in EUR/USD toward 1.1600 shortly.
The British pound gained 0.2%, trading at 1.3451 against the dollar.
Across Asia, USD/JPY climbed 0.1% to 159.15, marking a peak not seen since June 2024, with the yen continuing its downward trajectory.
This move has been linked to reports that Japan’s Prime Minister, Sanae Takaichi, plans to dissolve parliament, potentially leading to a snap election for the lower house on February 8. Investors are focusing on Takaichi’s proposed expansive fiscal policies, which include substantial stimulus packages aimed at invigorating economic growth and combating deflation. Such expansive spending would likely increase government debt and postpone tighter monetary action from the Bank of Japan, exerting further downward pressure on the yen—a trend termed the “Takaichi trade.”
Concurrently, USD/CNY fell slightly by 0.1% to 6.9736 following the release of December’s trade figures from China, which revealed a substantial surplus. Export volumes exceeded expectations, and imports demonstrated robust growth, signaling strong external demand coupled with signs of recovering domestic consumption. For the entire calendar year 2025, China’s trade surplus surged to a record $1.25 trillion, as export disruptions to the United States were largely offset by heightened demand from other markets.
The Australian dollar traded flat against the greenback at 0.6688.